2000 (7) TMI 133 - AT - Central Excise

Summary

Issues:
Determining assessable value for job worker based on cost of manufacture and profit earned.
Interpretation of Supreme Court judgment in Ujagar Prints case regarding assessable value.
Consideration of relationship between manufacturer and buyer in determining assessable value.
Application of Valuation Rules when goods are not sold by the manufacturer.
Impact of relationship on cost of manufacture and price determination.
Allegations of artificially depressed manufacturing costs and financial flows between related parties.
Significance of percentage of production cleared to allegedly related persons.
Dismissal of claims regarding identical processing costs for fabrics supplied by different parties.
Assumption of relatedness of firms in decision-making process.
Non-consideration of arguments regarding actual relatedness and limitation period.
Allowance of appeals and setting aside of impugned order.

Analysis:
The judgment by the Appellate Tribunal CEGAT, Mumbai dealt with the issue of determining the assessable value for a job worker based on the cost of manufacture and profit earned. The appellant, engaged in processing textile fabrics as a job worker, faced allegations of relatedness with other firms supplying grey fabrics. The department proposed adopting the selling price of the grey fabrics supplied by related firms as the assessable value. The appellant contended that the assessable value should be based on the cost of manufacture, citing the Supreme Court judgment in Ujagar Prints case. The Tribunal agreed, emphasizing that the cost of manufacture by the processor should be the basis for assessable value, regardless of the relationship between the job worker and the supplier.

Regarding the interpretation of the Ujagar Prints judgment, the Tribunal highlighted the significance of the relationship between manufacturer and buyer in determining the assessable value under specific clauses of the Act. When goods are not sold by the manufacturer, Valuation Rules, particularly Rule 6, come into play to determine the price based on the cost of raw material, manufacture, and profits. The Tribunal emphasized that the cost of manufacture should not change based on the relationship between parties unless there is evidence of artificially depressed costs or financial flows affecting the manufacturing process.

The judgment also addressed the significance of the percentage of production cleared to allegedly related persons. The appellant argued that the cost of processing for fabrics supplied by different parties was the same, indicating that the relationship did not influence the cost of manufacture. The Tribunal rejected the Commissioner's dismissal of this claim, emphasizing that identical processing costs for identical fabrics processed for different buyers are plausible.

In conclusion, the Tribunal allowed the appeals, setting aside the impugned order, based on the assumption of relatedness between firms. The judgment did not delve into arguments regarding the actual relatedness of parties or the limitation period for the demand. The decision underscored the importance of determining assessable value based on manufacturing costs and profit, as per legal precedents and Valuation Rules, while considering the impact of relationships on cost determination.